Amid a deterioration in revenue collections in 2012/13, Finance Minister Pravin Gordhan confirmed last week that a tax review would be initiated in 2013 to assess South Africa’s tax policy framework and its role in supporting “inclusive growth, employment, development and fiscal sustainability”.

A tax review committee, headed by Judge Dennis Davis, would be established and its terms of reference and other members would be announced in due course.

Gordhan, therefore, refrained from announc- ing any major new corporate or personal tax increases in his fourth Budget address to lawmakers. But he stressed that South Africa found itself in a “challenging period”, with revenues having come in R16.3-billion lower than expected, compared with estimates in the 2012 Budget.

The revised tax revenue estimate for 2012/13 was R810.2-billion, against consolidated expenditure of R1.05-trillion in the period.

Revenue collections were expected to rise to R985.7-billion in 2013/14, when expenditure was forecast to rise to R1.15-trillion, representing a Budget deficit for the year of 4.6%.

Gordhan confirmed the 2012/13 deficit would be 5.2%, which was worse than the 4.8% forecast in October’s Medium-Term Budget Policy State- ment (MTBPS).

The deficit was projected, in Budget 2013, to fall to 4.6% in 2014/15, to 3.9% in 2014/15 and to 3.1% at the end of the medium-term period in 2015/16. The MTBPS, which preceded a slew of downgrades from credit rating agencies, partly on concerns over so-called ‘fiscal slippage’, forecast deficits of 4.5%, 3.7% and 3.1% for 2013/14, 2014/15 and 2015/16 respectively.

Gordhan said the lower collections were predominantly owing to weak economic growth during the second half of 2012, mining sector disruptions and lower commodity prices.

Also outlined were plans to cut spending by R10.4-billion over the coming three years through “reprioritisation, savings and a draw-down on the contingency reserve”.

With Statistics South Africa having confirmed gross domestic product growth of 2.5% in 2012, which was in line with the National Treasury’s October forecast, but below the 2.7% predicted in the 2012 Budget, Gordhan moderated his growth forecasts for the three-year Budget review horizon.

Having projected growth of 3% for 2013 in October, the figure was revised to 2.7% in Budget 2013, with growth forecasts of 3.5% and 3.8% for 2014 and 2015 respectively.

The outlook presented was marginally less optimistic than the International Monetary Fund’s (IMF’s) January growth forecast for South Africa of 2.8% for 2013, itself a downward revision from the 3% projected in October 2012. The IMF predicted growth of 4.1% for South Africa in 2014.

The main tax proposals in the 2013 Budget were summarised by Gordhan as:

• Personal income tax relief of R7-billion, together with adjustments to the medical tax credit and other monetary thresholds, amounting to about R350-million.
• • Reforms to the tax treatment of contributions to retirement savings.
• • An employment incentive through the tax system for first-time job seekers.
• • Further tax relief for small businesses, includ- ing an increase in the monetary tax thresholds applicable for small business corporations.
• • An overall increase of 23c/ℓ in fuel levies in April, which included 8c/ℓ to the Road Accident Fund levy.
• • Increases in excise duties on alcohol and tobacco products of between 5.7% and 10%.
• • The introduction of the carbon tax in 2015, together with the phasing out of the electricity levy.

The 2013/14 tax proposals would reduce collections by a net R2.4-billion.

The associated Budget Review document released by the National Treasury outlined various measures to protect the tax base and limit the scope for tax leakage and avoidance.

A review of mining taxation, meanwhile, would assess whether the prevailing royalty regime was the most appropriate system to sustain collections and South Africa’s position as a competitive investment destination for resources companies.

More immediately, the document said the taxation of trusts would come under review to control abuse, while modifications could be made to the tax treatment of employment share schemes and disability or income-protection policies.

Efforts would be made to ensure ‘artificial’ and/or ‘excessive debt’ were dealt with to restrict the use of debt as an instrument to erode the tax base.

Also proposed was that foreign businesses which sell ebooks, music and other digital goods and services be required to register as value-added-tax vendors, in line with regulations that had been adopted by the European Union and other jurisdictions.